Annual Report 2016

Chairman's report

Dear Shareholders,

The net operating profit achieved by Trade Me in the 2016 financial year was $83.0m. This result was a 3.5 per cent improvement on the 2015 financial year. Growth in the second half of 2016 was 6.5 per cent stronger than the comparable period a year earlier. Our period of relatively high investment in 2014 and 2015, which limited profit growth in those years, began to abate in the second half of the 2016 financial year.

All of our core businesses performed well in 2016. Our General Items marketplace returned to solid growth in the second half of the year. Gross merchandise sales (or GMS) is the total value of sales that we facilitate, and is an important number for online marketplaces to focus on. In 2016, new goods GMS grew by 9.0 per cent and used goods GMS grew by 6.1 per cent.

All of our core businesses performed well in 2016. Our General Items marketplace returned to solid growth in the second half of the year.

You can read more about the product and people investments that have been made to deliver this turnaround in GMS growth and the performance and prospects for all of Trade Me’s businesses in Jon Macdonald’s report.

In 2016, the revenue of our classified businesses grew by a healthy 13.2 per cent but the collection of other smaller businesses owned by Trade Me delivered lower growth than the previous year. Advertising and payments did well, but in dating and travel the global giants are taking business from FindSomeone and Travelbug.

Thoughtful investors will ask themselves if Trade Me is vulnerable to a giant international competitor.

Global companies, almost all based in the United States, include Google in search advertising, Facebook in social media, Booking.com in online travel, Amazon in online retail, Uber in taxi services, Tinder in dating and Airbnb in private accommodation are good examples.

However, Trade Me has important advantages in its core marketplace and classified advertising businesses that give us confidence no international competitor is about to dominate in its core markets in New Zealand.

First, and most important, Trade Me has highly competitive products. In the marketplace business this means having the best range, pricing, delivery, payments and user experience on mobile and the website. This is what the company has been investing in heavily for the past three years. Trade Me won’t ever beat Amazon on total range but can win on pretty much all the other important elements of a great marketplace, including the trust of buyers and sellers.

Second, being local has some important advantages. Sellers can deliver products faster and large items, for which delivery cost is a significant part of the total cost of purchase, are much less expensive if bought locally. In many categories New Zealand-based sellers have a better understanding of what New Zealand-based buyers are interested in than international sellers.

Classified advertising is even more inherently local in nature. The cars, houses and jobs listed on the Trade Me classified sites are New Zealand cars, houses and jobs and the people looking to buy them are overwhelmingly New Zealanders. International competitors may in the future create a business model that is better at aggregating the most internet and mobile traffic in New Zealand and in gaining the most listings in jobs, homes and cars, but right now we can’t see that happening.

The final dividend of 9.0 cents per share will be payable to shareholders on our register as at 9 September 2016 and the dividend will be paid on 20 September 2016. This follows an interim dividend of 7.8 cents per share paid to shareholders on 22 March 2016.

Jon Macdonald and his team have done an excellent job over the last three years to set Trade Me up for long-term success. The board thank them for all their hard work and congratulate them on the results we all can increasingly see.

Jon and his team have done an excellent job over the last three years to set Trade Me up for long-term success.

This year we farewelled Gail Hambly from the board and welcomed Katrina Johnson. Gail had been a director of Trade Me since the company was floated in 2011 and during that time made a real difference to the board and the company. We thank her for all she has contributed. Katrina is the current legal director of Uber in Australia/New Zealand and before that worked at eBay in Australia and the USA.

Our annual shareholder meeting this year is in Wellington on 10 November. I look forward to seeing as many of you as are able to make it.

Yours sincerely,

David Kirk
Chairman
Trade Me Group Limited